Fantasy sports sites back in business in N.Y. after appeal

DraftKings Inc. and FanDuel Inc. can continue doing business in New York for now, after an appeals court halted a trial judge's order to temporarily halt daily fantasy games in the state.

An appeals judge on Friday granted the companies a reprieve until an appellate panel has a chance to rule on a request to block the temporary ban while the companies challenge it.

Final papers in this first stage of the appeal are due Jan. 4, said Joshua Schiller, a lawyer for DraftKings, meaning New Yorkers can keep playing fantasy sports at least until then.

"This is a necessary first step on the road to an appeal that we believe we will win," Randy Mastro, another attorney for DraftKings, said after an emergency hearing in Manhattan.

In a seesaw contest of legal rulings, the trial-court judge ruled Friday morning that the companies must temporarily close while they fight to prove they shouldn't be banned under New York state gambling laws.

That decision, sought by Attorney General Eric Schneiderman, potentially choked off the sites' largest market and threatened the future of companies that as recently as September boasted valuations of more than $1 billion.

Emergency Challenge

Hours later, appellate judge Paul Feinman — hearing an emergency challenge to the morning's ruling — said the companies could keep doing business in the state for now. FanDuel and DraftKings have said they would be irreparably harmed if forced to close even temporarily in New York.

Matt Mittenthal, a spokesman for the attorney general, had no immediate comment on the latest ruling.

DraftKings and FanDuel stand to lose an estimated $35 million in combined annual revenue without New York, which accounts for 13 percent of the nation's fantasy sports market, according to Eilers Research data.

Judicial support for a ban in New York might embolden other states, said Joseph M. Kelly, a professor of business law at SUNY College of Buffalo.

California is the No. 2 market, with 10 percent, and is worth $27 million in combined annual revenue to the two biggest sites. A state assembly committee there is scheduled to discuss a bill that would regulate daily fantasy sports on Dec. 16.

Chance or Skill?

In daily fantasy sports games, a player assembles a roster of athletes and wins or loses based on their real-life performance. The New York attorney general says the business constitutes illegal gambling under state law because the outcome of the contests depends mostly on chance and factors outside of a player's control.

The sites argue that their games are contests of skill, in which a player acts as de facto general manager and selects a team that doesn't exist in real life.

Smaller companies including DraftOps, DraftDay, DailyMVP and MondoGoal have shut down their New York operations, although they weren't compelled by Schneiderman. Yahoo Inc., which operates the third-largest fantasy sports site, was subpoenaed but not told to close by the attorney general.

State Bans

Six states have banned daily fantasy sports games. Others have chosen more moderate regulation. Nevada has classified the activity as gambling, subject to the rules and taxation there. The attorney general in Massachusetts has proposed regulations that label the sites as gambling operations but keep them legal for players over 21 if contests exclude college sports.

New York's case could immediately influence the more than half-dozen states with laws that define gambling contests as games whose outcomes depend on a "material degree" of chance rather than mostly skill, said Kelly, the Buffalo professor.

It also could affect the calculus for the companies that help facilitate payments for some sites, he said. PayPal Holdings Inc., for instance, said in a statement after the morning ruling that it would stop processing payments for fantasy sports providers.

The cases are FanDuel Inc. v. Schneiderman, 161691/2015; DraftKings Inc. v. Schneiderman, 102104/2015; Schneiderman v. DraftKings Inc., 453054/2015; and Schneiderman v. FanDuel Inc., 453056/2015, all in New York State Supreme Court, New York County (Manhattan).

Bloomberg

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